Syracuse Real Estate Investment Trust

Author: Jason Tompkins
Course: IST 718 Big Data Analysis
Date: August 19, 2021

The Syracuse Real Estate Investment Trust (SREIT) would like to select a geographic area to focus their investment activities. The primary goal is to find an area with higher-than-average return on investment (ROI). The secondary goal will be to select an area where the growth is relatively stable.

The Zillow Home Value Index contains that monthly median single family residence price for 30,464 zip codes. A significant amount of the historical data goes back as far as January 1996. Using 24 years of SFR price data will allow SREIT to analyze and forecast the viability of real estate investments across all 30,464 zip codes.

Data Sources:

In addition to analyzing all the zip code data, SREIT committee would like an area analysis of four Arkansas Metro areas; Hot Springs, Little Rock, Fayetteville, and Searcy. It has been noted that many of the Metro areas have seen strong growth. Not only is there interest in potentially investing in that region, but also using the Arkansas Metro areas as a basis for comparison to other metro areas that have experienced a high rate of growth.

Forecasting tools will be used to project the probable investment growth for high potential metro areas. The result of this analysis will be a recommendation for three specific zip codes in the same metro area for the committee to focus on.

Initial Analysis

One of the challenges with the ZHVI data is that not all the zip codes have complete data for the 24-year period between 1996 and 2020. In an effort to preserve all of the observations, a subset was created to compare the growth rate of property values over a five-year period, 2015-2020.

The mean five-year ROI for single family residences was 26.2% with a 16.6% standard deviation. The median ROI was 24.5%. The upper quartile for ROI is between 33.9% and a dizzying 248%. The upper quartile was sorted to rank the top 30 zip codes in terms of ROI.

There are several geographic areas of note including Columbus-Ohio, Tampa-Florida, Beverly Hills-California, and Tacoma-Washington. The most significant metro areas are ones with several high growth zip codes in the top 30. Atlanta-Sandy Springs-Roswell in Georgia has six zip codes in the top 30. Dallas-Fort Worth-Arlington in Texas has ten.

Map Visualization: High 5-Year ROI Zip Code Locations

A geographic map visualization was created using the upper quartile ROI data. The purpose of this map is to visually identify clusters of high growth zip codes in the same metro areas. Dense clusters can be seen around Tacoma-Washington, Los Angeles-California, Dallas-Texas, Columbus-Ohio, Atlanta-Georgia, and Tampa-Florida.

Area Analysis: Arkansas Metro Areas

The property values data for four Arkansas Metro Areas was created by taking the mean of the SFR prices in the associated zip codes over time. The resulting data is a representative SFR value by metro area, one observation per metro area. Next the 24-year ROI was taken for each of the four representative observations. Fayetteville had the highest ROI at 90.6% over 24 years.

24 Year ROI (1996-2020)

A chart can be made to show the values over time. There are several observations that can made by looking at a line graph of the data. The metro area with the highest average SFR prices, Fayetteville, performed the best over time. The metro area with the lowest average SFR prices, Searcy, performed the worst over time. This trend is not entirely consistent, because Hot Springs has lower prices on average than Little Rock, but Hot Springs had slightly higher growth. Fayetteville has experienced a higher growth rate in the past five years, characterized by a steep incline in the graph.

Another interesting feature is the peak in SFR values between 2007 and 2008. There was a global economic market crash in 2008 and the downward slope between 2008 and 2012 shows the effect on SFR values for all three metro areas. Fayetteville had the steepest correction. Searcy shows a slight downward trend but remains the most level of the four metro areas.

In terms of performance, it should be noted that Fayetteville had the highest growth, but also the highest volatility. One thing the SREIT will have to determine is a risk-reward tolerance. In hindsight the best option for a 24-year investment among these four Arkansas metro areas was to invest in Fayetteville. If the timeframe for the investment was 2008 to 2012, Fayetteville would be the worst option. The final recommendation will be to invest in an area where both growth and volatility are taken into account.

Area Comparison and Forecasts: Tampa, Atlanta, and Dallas

Based on the initial analysis of 5-year growth rates and map showing high growth clusters, Tampa-Florida, Atlanta-Georgia, and Dallas-Texas have emerged as very promising options for investment properties.

Following a similar procedure described above for the analysis of Arkansas metro areas. The metro areas of our three target cities were compared. Tampa had the had the highest ROI at 172.1% over 24 years. Atlanta and Dallas were similar in ROI, 106.3% and 105.6% respectively.

24 Year ROI (1996-2020)

Using the fb Prophet Forecaster tool developed by Facebook the timeseries data for each metro area can be submitted as the input for a forecast model of SFR values for the next three years. The growth for all three metro areas are comparable, approximately 16% to 20% over three years from 2020-2023. Dallas has the highest projected ROI of 20.1%. Tampa has the next highest, 18.8%. Atlanta has the lowest ROI of 16.7%. The other feature for the forecasts was a 95% confidence interval. Tampa had quite a wide margin for error, which included a lower boundary illustrating a possible loss. The Atlanta forecast had a narrower margin of error, where the worst case scenario shows a plateau in 2022 and 2023. Dallas had the tightest margin of error that only showed growth within the 95% confidence interval. Given the extremely high ROI in the Dallas Metro area and the low volatility, Dallas is the most promising metro area for SREIT’s investment activities.

Economic Analysis: Dallas Metro Area

Given that the recommendation for investment will be three zip codes in Dallas, an economic analysis was conducted to examine the effects of other economic forces on SFR values. The three additional socio-economic measures that were considered were Employed Population, GDP, and Total Population between 2005 and 2020. The employed population of Dallas combines the change in overall population with the participation rate. The GDP measurement is the Gross Domestic Product localized in the Dallas metro area. The total population shows the change over time in the population of Dallas.

These three measurements were compared to an annualized version of the SFR values for Dallas starting. In order to chart the relative growth of these four indicators, each one was divided by the initial value so that they all started with a representative value of 1.0 in 2005. Population growth and employed population growth are correlated but neither seems to have any correlation with SFR values. There seems to be a strong parallel between GDP growth and the growth in SFR values. Both GDP and home values were affected by the downturn in 2008, but GDP recovered in 1 year while it took 4 years for home values to recover. GDP forecasts for Dallas will likely be a strong indicator for the direction of home values in Dallas.

Conclusion and Recommendations

Dallas emerged as an ideal metro area for SREIT to invest in. A third of the top 30 zip codes when using 5-year ROI as a criterion, where located in the Dallas area. A map showing the top quartile of zip codes showed a cluster of high growth zip codes in Dallas. Additionally, the forecast provided by fbProphet showed strong growth and low volitility.

The recommendation to SREIT is to invest in Single Family Residence properties in the following zip codes; 75226-Dallas, 75206-Dallas, and 75141-Hutchins. These zip codes experienced very high growth over the past 8 years, the highest being 75226 at 265.3%. Further, it is recommended to forecast both SFR values and Local GDP on an annual basis to predict possible downturns.

8 Year ROI (2012-2020)